Investor Bulletin: New Rules Improving Municipal Disclosure
The Securities and Exchange Commission approved rule changes on May 26, 2010 designed to improve the quality and timeliness of information available to investors about municipal bonds.
Why is the SEC making these changes?
Expanded disclosure will not only help investors make more informed decisions about investment in municipal bonds, but also help them protect themselves against fraud involving such bonds. The amended SEC rule is designed to provide investors with information about events that may affect the value of their municipal bonds or their tax status. The Rule also is designed to help municipal bond investors obtain information faster. The Rule previously was designed to result in issuers providing information in a timely way, but did not impose a firm deadline; in some cases, investors complained that disclosure came months after the fact, when it was less useful.
In addition, the SEC significantly narrowed a longstanding exemption for disclosure about demand securities, including variable rate demand obligations (VRDOs). VRDOs are long-term bonds whose interest rate adjusts frequently and whose holders have the option to redeem the bonds on short notice. The market for these securities is now quite large and can be volatile, as seen in the fall of 2008, underscoring the need for investors in such bonds to have access to timely information.
Who might be affected by the changes?
What are the changes?
SEC rules adopted in 1989 and amended in 1994 and 2008 required underwriters of municipal bond offerings to determine whether the issuer or obligated person had agreements in place to provide certain information in an electronic format to the Municipal Securities Rulemaking Board (MSRB). Prior to the May 26, 2010 rule changes, the information was limited to: certain annual financial and operating information and audited financial statements; notification of the occurrence of 11 specific events, if material; and notification if an issuer failed to file its required annual financial information on time.
The MSRB now makes certain information provided by the issuer or obligated person available to the public on its Electronic Municipal Market Access (EMMA) Internet site (www.emma.msrb.org). EMMA is a comprehensive, centralized online source for free access to official statements, continuing disclosure documents, advance refunding documents, and real-time trade price information on municipal securities.
The changes will do the following:
What types of events will be disclosed?
Under the amended rule, information should be provided about any:
In addition, the following six events will be disclosed if they are material:
When will these changes become effective?
They will apply to primary offerings of municipal securities that occur on or after December 1, 2010.
The MSRB’s EMMA website: www.emma.msrb.org